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Monday, Dec. 4, 2006 | Plans are clearly underway for a phased withdrawal. Not wanted any more. Need to assume the indigenous population will revert to their previous unruly behaviors. Need to get out, but have to do so in a way that will both avoid disaster during the leaving, and won’t get sucked back into a later bloodbath.

It’s not Iraq.

It’s KPMG.

This week we found out that the city’s 2003 audit is still not done after three years, and that the earlier $4.4 million running cost is going to go up by at least another $1.8 million, for a cool running total so far of $6.2 million. And, it’ll be even higher than that before all is done.

Some City Hall watchers and players argue it’s “extortion” and suggest that the city is getting played for money.

I’m telling you – It ain’t so.

I have worked with the big accounting firms on lots of corrugated financial puzzles in the past. There is definitely a point of diminishing returns for these folks, and we went by that point years ago.

KPMG likely wants to leave more than we want them to leave. There’s just one teensy-weensy problem: They’ve been stonewalled by the city on information and materials that they must have to do their work – like the reconciliation of the city’s “cash balances” which they’ve waited years to receive. Without this stuff, they’d just have to “trust” the city’s representations in issuing their audits. The mayor said it best: “If there was trust, it would have been done a long time ago.” But, they don’t “trust” the city, and shouldn’t for that matter. Neither do any of the rest of us.

There was an interesting disclosure at the end of the online version of the Union-Tribune article on the subject (which did not make the printed version). It went:

The city gave KPMG its most recent version of its 2003 financial statements the Tuesday before Thanksgiving, Goldstone said. It addressed “98 percent” of the issues KPMG raised in recent weeks, and left a few items for discussion.

If you’re under SEC investigation for disclosure fraud, and still providing your auditors required information the Tuesday before Thanksgiving three years into your audit, “with a few items left for discussion,” expect it to cost $7 million and take a long time.

I’m with KPMG on this one. Stop whining.

Balboa Trust: I was wrong.

I hate to say it. It doesn’t happen that often (I hope). But sometimes, well, it does.

Those who read my post last week probably sensed my suspicions about the “public-private” partnership talk about privatizing Balboa Park. If you got that, you were right.

But, as I watched Thursdays KPBS “Full Focus” with Gloria Penner, I learned a few things not known from the previous dispatches from City Hall. Councilmember Toni Atkins was a guest (the park is in her district) and she was pretty candid about what the great lady of the park is facing.

Seems Balboa Park needs about a quarter-billion dollars (that’s $250 million) to meet basic infrastructure and future planning needs. Of that, about $159 million is just for basic “deferred” maintenance. Nothing exotic here: Sewer pipes, building fascia, safety issues, that sort of thing.

There is NO money like this for parks in general, much less for Balboa. There is no existing money like this in the city’s future even for fire, water, sewer, roads or other such stuff. We are broke on our fannies in a way still not publicly acknowledged or appreciated by our regional newspaper or city government. We can’t fix or keep Balboa Park as a strictly city asset. To be fixed – it will have to go.

And when it does, it will be a different place. No judgments here. Just different.

“News Hour” on PBS had a piece recently on the “privatization” of Presidio Park in San Francisco. This was federal military property that was BRAC’ed (closed) for want of a more complete definition. It’s adjacent to The Golden Gate Bridge – a very cool place. Well, with no available government money to maintain or preserve its buildings and spaces, it was given a short leash to become a “break even” operation or be sold off to developers.

The Presidio Trust was formed and they have brought commercial financial management to that park. It now has far more commercial elements on the property, like a very substantial “Lucas Films” campus (the “Star Wars” company) and a private (and very cool) “spa” facility that costs $150-$850 per treatment. And, other such commercial ventures.

These entities pay substantial rents which help keep Presidio in the black so it won’t be sold.

The down side, if you see it that way, is that non-profits are all but out. Community presences are replaced with commercial presences. Not an immediate crisis. Just the reality.

Balboa Park is going that way to survive. Make no mistake about it.

That is just another price of not dealing directly with our financial issues, including the monster pension and health care deficits (created by and for one small group of city employees) – regardless of whether City Attorney Mike Aguirre is successful in his efforts to reduce them.

Following the Panama-California Exposition in 1915, when this city had far fewer residents – and no “sneaky” deficits – there were engaged debates and public demonstrations to not reduce the size of Balboa Park as desired by the then builders groups. The people decided to keep the park big (actually gigantically big for a city of under 50,000 people).

In the 1940s, the people of this city voted to finance the dredging of Mission Bay rather than filling it in as the builder groups desired for housing.

This came at an enormous cost for its time. There certainly must have been a positive, hopefulness in this place that caused those that came before us to step up as a city to do these great things back then.

But, no more. No positive hopefulness. No stepping up. Now we are left to selling off, cutting back, giving up, and fooling no one.

The Journal of San Diego History says it best: “Perhaps San Diego has been blessed with too many other assets of bay, beaches, ocean and viewpoints to need that urban respite and pressure release that John Olmsted wanted to create in Balboa Park.”

Amen.

“Emeargency, emeargency! Everyone to get from street”: There were final arguments in the first phase of the “how-broke-are-we” trial in Superior Court. An attorney for one of the parties argued that invalidating the massive illegal deficits would leave the city “in chaos.”

Let’s see. SEC consent decree, no audits since 2002, no borrowing capacity, no reserves, no revenue sources for water or sewer infrastructure, no credit rating, selling our municipal assets, raising every fee, “boil-your-water” advisories for E. coli contamination, ordinances to prevent further municipal looting, and massive multi-billion dollar unpaid obligations with no known source of payment. That’s where we are now. I think I’m willing to take a chance on whatever “chaos” would accompany getting rid of the illegal deficit.

There is a bigger point to this controversy that gets smooshed in all the legalese. And that is, in a contest between the two, do the financial interests of public employees trump the rights of the public to a municipal government that protects their health, safety and welfare? Both are important however, are they equally important?

In this state, public employees have a right to an actuarially sound pension plan paid for by the generation of employees and taxpayers that receive those benefits. Here, benefits were intentionally increased and payment intentionally deferred jeopardizing both the actuarial soundness of the pension plan, and the health, safety and welfare of the entire city.

The public also has rights. When public employees agree to allow the creation of future debt impairing the government’s ability to do its job of protecting the heath and welfare of citizens, whose rights are more important?

This isn’t about being for or against municipal unions or defined benefit pension plans. It’s about how we should act so that the one group of interests doesn’t take advantage of the other.

Good News for The Business Community: I know a lot of folks in the Chamber of Commerce – I like most of them. But, in fairness, I have to say there is no organization faster to agree with, congratulate, and have a parade for stuff coming out of City Hall than the CofC. This is a group that seems to cheer for whoever in city government is selling whatever is being sold. Why? I don’t know.

Recently the CofC did a Charger endorsement – sort of. Scott Lewis did a modest piece on it and since I can’t do better, you should read his post.

I understand some group of the CofC recently voted unanimously to approve the mayor’s five-year financial plan. This plan is a bracing track for the city with deficits, massive service cutbacks, sales of public assets and other unpleasant stuff. I’ll bet none of the “unanimous voters” can even explain what the plan does. And, I can guarantee none of these “unanimous voters” would tolerate such a business plan for their own little pieces of commerce.

Anyway, Gloria Penner (you remember her, from the KPBS program – above) asked Council President Scott Peters about the “not-so-happy-beach-party” reality of this financial plan: How’s the city going to handle this? Should the average citizen be concerned about what’s coming?

(Here comes the good news.) He said that the city would be soon in negotiations with the unions about what they would be willing to throw in the pot (you can probably guess how that will go), AND (get this) the city would having to ask more from its “business community” to deal with funding these matters.

Well, there you go. Maybe some new pom-poms are in order.

“What Do San Diegans Really Pay?”: Jon Dunchack raised some interesting questions and suggestions in his opinion piece last Friday.

His point is, I think, that if we understood exactly how much we are paying (or, more correctly, not paying) for our public services we’d be less unwilling to pay more.

Notwithstanding Jon’s disciplined approach, the problem here in San Diego is that the one side of the equation (i.e. payment) has so little to do with the other side (performance), that the normal conclusions from the analysis Jon suggests might have no application here.

For example, the Black & Veatch 2005 Water/Wastewater Rate Survey for the 50 largest U.S. Cities shows San Diego rates in the top-three most expensive rate paying cities for regular residential customers (that’s most of us).

Top 3. That’s for the entire United States.

We are already at virtually the highest rates in the nation but our water has E. coli in it and our sewers are so shot we can’t meet minimum federal standards. We’ve had water and sewer rates raised about 100 percent over the last decade and they will be raised another 30 percent in the next five years. And, we keep paying because dirty and broken water and waste water systems can kill us.

See, the fact that we pay a lot for these services doesn’t equate to the services being provided.

It’s not about the kinds of municipal services we want. At this point, I think we’d all settle for just the basics like water, sewer, police, fire and roads. The bigger question is why hasn’t our city government been doing its job? It isn’t that we didn’t put up the revenue for the water/sewer problem – we obviously did. It’s that the revenue we did put up didn’t provide the services we needed. Why? And, how do we fix that?

It’s easy to see that San Diego city government has failed. Despite political spin to the contrary, we do have E. coli in our drinking water, we do dump millions of gallons of raw sewage in our ocean (what would we do without the ocean?), we don’t have adequate police personnel or fire equipment, and we do have a completely unaffordable pension plan that was crafted by city officials and union leaders on the bizarre premise that in San Diego we don’t have to pay for the pension benefits we promise. Who thinks like this? Who comes up with this stuff?

And, because we do not have the stomach to face up to the hard work of adjusting our financial condition so the public can get some confidence back in government, we are left with a financial plan that will suck every dime out of our city budgets for decades into the future in a futile effort to pay down a monstrous (previously hidden) deficit that benefits only a few.

How do we fix that type of thinking?

Seems like the real analysis we need to do now is not so much the tallying of component parts of what we currently pay, but rather coming up with the total of what we really owe (for the pension, retiree healthcare, water and sewer, fire, police, roads, Balboa Park – you see where I’m going with this). That’s the part that seems to have been hidden all these years. Could be that number is so large it may force its own solution. And, it’s just possible that “increasing fees” and “selling public land” won’t be enough to get out. Then, the question will be, will voters support a pension tax, or other taxes for that matter. I don’t think so unless it’s part of a comprehensive solution. And there is no easy “soft landing” in that adventure.

The analysis is relatively easy. The “doing it” is the hard part.

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